Shares in baby formula supplier Bellamy’s Australia continue to tumble as analysts raise the prospect of more financial pain for the company in coming years.
Bellamy’s has replaced its long serving chief executive Laura McBain and altered a major manufacturing contract as it deals with a major hit to its earnings from weaker than expected demand for its formula.
Its shares were down 71 cents, or 13.3 per cent, at $4.64 at 1235 AEDT, following a 19.9 per cent drop on Wednesday.
Since its initial warning in early December of disappointing formula sales, Bellamy’s market value has fallen 61 per cent, or $744 million.
The company said on Wednesday that lower-than-expected sales have resulted in increased inventory levels, excess ingredients and the need for shortfall payments to suppliers that are subcontracted to make Bellamy’s products.
IG market strategist Evan Lucas said analysts were downgrading Bellamy’s in the wake of the company’s update, which forecast a drop of more than 50 per cent in annual earnings.
Analysts are mainly concerned about potential writedowns on the high level of inventory. Bellamy’s said inventory levels were at $105 million to $110 million at December 31.
“What is the concerning part is the ability to actually reduce that inventory level,” Mr Lucas said.
“There’s around $100 million in inventory that has a shelf life of two to three years. The writedowns that are likely to come there are probably still unpriced.
“That’s what most of the analytical world is worried about – their strategy and ability to actually get that inventory down, along with the fact that they have payout agreements with suppliers that are still coming on line.'”
Mr Lucas said the challenge Bellamy’s was reducing inventory and maintaining market share without engaging in too much discounting.
“That’s looks very, very tricky,” he said.
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